Patent royalty rates: an element of surprise
A large sample containing 3,704 unredacted pharmaceutical licensing agreements retrieved from the RoyaltyStat database in March 2016 reveals that sales-based pharma royalty rates have a stable 5% median, with an interquartile range from 3% to 10%. The frequency distribution of the royalty rates is skewed to the right, ie, it’s not normal.
An unredacted licensing agreement has the royalty rate and additional considerations such as upfront fees and milestone payments disclosed to the public. These agreements are submitted as “material contracts” to certain filings made by listed companies to the US Securities and Exchange Commission. We have separated patent agreements by sub-industry and “naked” (bare) deals from non-naked patent agreements.
The stability of the median pharma patent royalty rates persists when the data are divided by sub-industry. Table 1 shows that except for cardiovascular and gastrointestinal drugs, in which the median royalty rate is 6%, all the other drug types convey the same stable 5% median royalty rate.
